Scotia Upgrades ..G&M Believing 2022 is “full of possibilities” for Pembina Pipeline Corp. (PPL-T), Scotia Capital analyst Robert Hope raised his recommendation for its shares to “sector outperform” from “sector perform” on Monday, touting “many avenues to growth upside.”
“We see Pembina growing free cash flow at a 2022-2024 estimated CAGR [compound annual growth rate] of 5 per cent, which would be in-line with the median for the pipeline and midstream group (ex TWM and LCFS),” he said. “That said, we believe our estimates are conservative and see many paths to upward revisions. In fact, we see Pembina as among the best positioned in the midstream group to benefit from the very strong commodity price environment. We believe that the potential for positive catalysts far outweighs the potential for negative catalysts. On the positive side, in 2022 we could see some previously deferred projects restarted, which would add to our longer-term growth outlook. If commodity pricing remains robust, there is upside to our 2022 Marketing expectations – and potentially guidance. There is also upside to returns from existing assets if volume growth remains robust. Pembina is well positioned to fund any incremental growth, and in 2022 has excess cash flow, which we expect will be devoted to share buybacks. Absent new growth, we see further share buybacks in 2023 and 2024. That said, we do believe the company has a preference for growth capital over buybacks – and the backlog of potential projects is very large ($4-billion).”
Believing its “attractively valued,” he raised his target to $47 from $43. The average is $44.38.
“Since the announcement of the CEO transition, Pembina’s shares have underperformed its peer group,” said Mr. Hope. “While not a surprise, we believe the underperformance is overdone given our view the overall direction of Pembina will be the same regardless of who takes the CEO position. Absent the CEO change, we would have expected strong price performance from Pembina during this period of strong commodity prices.”